We all know that gold or silver are considered safe haven assets, but have they held their value and status in the current inflationary crisis?
When we face inflation, investors are looking for ways to place their money in the safest assets possible. Over the years, gold has established this image in the market. Now, when world economies are limping again, many Romanians or ordinary investors are looking for ways to cheat inflation and place their money so that it doesn’t depreciate and, why not, make a profit.
Under these conditions, one question remains: is it still worth investing in precious metals today? What is the pulse of the market, how gold and silver have performed and what is their potential for the future.
According to a recent analysis conducted by Radu Puiu, financial analyst at international stock brokerage house XTB Romania, gold and silver prices have risen in recent sessions, while stock market indexes have risen and the US dollar has lost ground. The role of gold in an investment portfolio during times of economic uncertainty and rising geopolitical risks could come back to life.
What is the pulse of the precious metals market, what you should know if you are tempted to buy
“Gold as a means to hedge potential losses against inflation is textbook, except that markets don’t move textbook. The markets are following the momentum. After a big rally earlier in the year, gold has lost much of its appeal.
To regain its “splendor”, it will have to gain ground against a formidable opponent, the US dollar. When the dollar becomes more expensive, a scenario that usually occurs during the tightening cycle, gold, whose price is expressed in U.S. dollarOn the other hand, when the value of the dollar falls, people look to gold and other safe-haven assets for inflation protection.
But in the context where economists and leaders of business by continuing to send mixed messages about the economy and the Federal Reserve remains steadfastly focused on fighting inflation, gold may still have a long way to go (…)
Since the beginning of the year, the price of gold has lost only 4%. However, when taking into account the high it reached this year at $2,072 in March, gold is down 15% from its current level of $1,757.
For gold to bottom, the dollar must peak and US Treasury yields must fall, or the Fed simply has to change its rhetoric monetary policy. The US dollar index (USDIDX) has gained more than 12% this year,” the specialist explained.
He also argues that gold remains attractive to some states facing historic currency depreciations and will likely resume its safe-haven status for the rest of the world once the dollar loses steam.
“But for this scenario to materialize, investors need to be confident that the Fed has either completed its tightening cycle or is ready to begin easing its stance to avoid a recession. According to Goldman Sachs, if a recession sets in and the Fed starts to cut interest rates, gold prices could increase between 18% and 34%.
But in the event of a “soft landing,” gold prices are likely to be capped until the Fed signals a more relaxed stance, which may not happen until the second half of next year. One factor that may help the cause of gold is still strong physical demand from China and India.
In the coming months, the demand for physical gold will increase during the festival and wedding season in India and the Lunar New Year in China,” he added.
Incidentally, for silver, S&P Global appears to have lowered its price estimates for the next two years, but has updated its long-term outlook.
“The latest consensus forecasts are now down by an average of 2.3% annually through 2026. Furthermore, despite expected near-term weakness, the price of silver is expected to remain broadly stable through 2026, with an average price of $22.34 an ounce,” the analyst added.
